Following are the current asset and current liability sections of the balance sheets for Freedom Inc. at January 31, 2020 and 2019 (in millions): Current Assets Cash Accounts receivable Inventories Total current assets Current Liabilities Note payable Accounts payable Other accrued liabilities Total current liabilities January January 31, 2020 31, 2019 Working capital Current ratio $9 6 6 $ 21 $ $ 15 $6 9 01/31/2020 01/31/2019 10 $ 25 Required: a. Calculate the working capital and current ratio at each balance sheet date. (Enter "Working capital" in millions of dollars (Le... 10,000,000 should be entered as 10). Round your "Current ratio" to 2 decimal places.) 4 b. Evaluate the firm's liquidity at each balance sheet date. O Based on the working capital and current ratio measures, the firm has become more liquid over the 2-year period. O Based on the working capital and current ratio measures, the firm has become less liquid over the 2-year period. c. Assume that the firm operated at a loss during the year ended January 31, 2020. How could cash have increased during the year? O Changes in a firm's cash position and its profitability are not directly related under accrual basis of accounting. O Changes in a firm's cash position and its profitability are not directly related under cash basis of accounting.
Following are the current asset and current liability sections of the balance sheets for Freedom Inc. at January 31, 2020 and 2019 (in millions): Current Assets Cash Accounts receivable Inventories Total current assets Current Liabilities Note payable Accounts payable Other accrued liabilities Total current liabilities January January 31, 2020 31, 2019 Working capital Current ratio $9 6 6 $ 21 $ $ 15 $6 9 01/31/2020 01/31/2019 10 $ 25 Required: a. Calculate the working capital and current ratio at each balance sheet date. (Enter "Working capital" in millions of dollars (Le... 10,000,000 should be entered as 10). Round your "Current ratio" to 2 decimal places.) 4 b. Evaluate the firm's liquidity at each balance sheet date. O Based on the working capital and current ratio measures, the firm has become more liquid over the 2-year period. O Based on the working capital and current ratio measures, the firm has become less liquid over the 2-year period. c. Assume that the firm operated at a loss during the year ended January 31, 2020. How could cash have increased during the year? O Changes in a firm's cash position and its profitability are not directly related under accrual basis of accounting. O Changes in a firm's cash position and its profitability are not directly related under cash basis of accounting.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Following are the current asset and current liability sections of the balance sheets for Freedom Inc. at January 31, 2020 and 2019 (in
millions):
Current Assets
Cash
Accounts receivable
Inventories
Total current assets
Current Liabilities
Note payable
Accounts payable
Other accrued liabilities
Total current liabilities
January
31, 2020
Working capital
Current ratio
6
EL EL
$ 21
$ 15
January
31, 2019
01/31/2020 01/31/2019
9
18
$ 25
Required:
a. Calculate the working capital and current ratio at each balance sheet date. (Enter "Working capital" in millions of dollars (1.e..
10,000,000 should be entered as 10). Round your "Current ratio" to 2 decimal places.)
$12
b. Evaluate the firm's liquidity at each balance sheet date.
Based on the working capital and current ratio measures, the firm has become more liquid over the 2-year period.
O Based on the working capital and current ratio measures, the firm has become less liquid over the 2-year period.
c. Assume that the firm operated at a loss during the year ended January 31, 2020. How could cash have increased during the year?
O Changes in a firm's cash position and its profitability are not directly related under accrual basis of accounting.
O Changes in a firm's cash position and its profitability are not directly related under cash basis of accounting.
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